Ahead of CPhI Discover* (May 17-28, 2021)—a virtual gathering for the pharma industry—Contract Pharma spoke with GlobalData’s Peter Shapiro, senior director of drugs and business fundamentals, about the trends he is seeing in the contract services space in the U.S., Europe and Asia. Shapiro discusses how the many recent large COVID contracts have benefited the industry and looks ahead at what the implications might be over the next few years. He explores growth areas like cell and gene therapies, mRNA and vaccines, as well as geopolitical factors and how development capacity constraints are helping drive increased venture capital (VC) interest.

Contract Pharma: What are the key factors that will be shaping the future of the CDMO service market over the next 2-3 years?

Peter Shapiro: The current state of approvals and outlook is positive for innovative CMOs that can develop and produce innovative NME (US) and NAS (EU) drugs. Many of the large CMOs headquartered in the U.S. and Europe have the capabilities to formulate and produce innovative products such as cell and gene therapies according to GlobalData’s recently published report, “New Drug Approvals and Their Contract Manufacture – 2021.”

However, generic pharmaceutical companies are more likely than innovator pharmaceutical companies to work with Asian CMOs, due to the sourcing of APIs having a huge impact on their profitability. Generic manufacturers pay slightly less than half of their total cost of sold goods for the cost of raw materials. Asian CMOs ability to offer a low price is critical in such a competitive market. China and India in particular have the largest number of API facilities in Asia according to the GlobalData Pharma Intelligence Center’s Contract Service Provider Database. The U.S. has more API facilities with specialized capabilities such as containment and controlled substances than China and India. Biologics manufacture is more likely to take place in the U.S. or Europe.

In terms of COVID, a select group of large CDMOs have benefited strongly, particularly those with sterile fill and finish facilities, or those that have advanced technologies have come out ahead. In the U.S. Operation Warp Speed has delivered sizable cash in-flows to CDMOs, but we have also seen many CDMOs in Europe benefit and also players like the Serum Institute in India.

More widely, you have seen initiatives like the Quadrilateral Security Dialogue in which the U.S., Japan, Australia and India are trying to supply vaccines for Southeast Asia: Japan delivers the funds, the U.S. provides the J&J vaccine, Australia medical personal and India the manufacturing—with Biological E winning the entire contract as the only company able to deliver in India. So, it’s a good example of how companies with the needed capabilities are clearly benefiting.

Contract Pharma: What are the key factors that will be shaping the future of the CDMO service market?

Shapiro: Outsourcing will continue to be driven by pharma companies’ divestment of facilities, along with contracts for products that will become generic or non-core, and also by new product manufacturing where the pharma company lacks the manufacturing capability or expertise. Biologics capabilities and capacity have been increasingly acquired or constructed by CMOs; however, as the majority of biologics and advanced therapeutics are marketed by larger market cap companies that are less likely to outsource, CMOs will have to find ways of enticing these companies to achieve a good return on investment.

Another trend we see according to the GlobalData Drugs database is that there are almost 3,000 gene therapies and gene-modified cell therapies in the pipeline—from discovery and preclinical stages through to clinical and pre-registration stages. This is an enormous number compared to the few such therapies approved so far, indicating a coming wave of commercial advanced therapy medicinal products (ATMPs). Current manufacturing methods for these therapies are inefficient and inadequate for scale-up to commercialization. There simply is not enough capacity to continue to manufacture these products in the same way when volumes increase. The CDMO, biopharma, and life science service industries are working to develop better methods of manufacturing ATMPs, involving automation, modular facilities, improving upstream titers, and adopting better downstream purification technologies.

Contract Pharma: Will CDMOs need more global locations driven by demand for services?

Shapiro: Yes, there are not enough locations for ATMP manufacture especially in Europe where almost a quarter of CDMO facilities are in the UK, according to the GlobalData Pharma Intelligence Center’s Contract Service Provider Database, which at least temporarily has become an issue because of undetermined post BREXIT logistic regulations. Cell facilities will need to be located near to patients until autologous cell therapies are developed. In addition, there is increasing demand for injectable manufacturing worldwide because of COVID-19 and wider trends in drug approvals.

Contract Pharma: What does technology and innovation look like in the post-COVID-19 CDMO market? Is outsourcing the natural next step?

Shapiro: Outsourcing will increase in the West because of demand and because big pharma companies are seeking to specialize in what they perceive as their strength in R&D, as well as the emergence of new virtual companies. At the same time, Chinese pharmaceutical outsourcing will increase because of the acceptance of modern regulatory practices. COVID-19 has illustrated how the top players in the CDMO market can adopt new technology in a short amount of time.

Contract Pharma: Which type of CDMO will see the biggest type of capacity constraint in the next 2-3 years?

Shapiro: There is a worldwide capacity crunch for viral vectors, which are a vital part of manufacturing many advanced therapy medicinal products (ATMPs) and some pipeline COVID-19 vaccines. Although some CDMOs have invested heavily in viral vector capabilities in recent years, there is still not enough capacity. The GlobalData Contract Service Providers database shows fewer than 90 contract manufacturing facilities offering this service.

Contract Pharma: Is the launch of Resilience by prominent venture capitalist Bob Nelsen a sign of the criticality of CDMOs to innovation?

Shapiro: It is true there is not another CDMO resources in certain advanced therapy areas, like for viral vector based-drugs, and yes this could be a development limiting step. But looking at Resilience so far, it is interesting that they are doing things by the typical private equity playbook. They bought a historically underperforming facility, and it will be interesting to see what they do next, and whether it’s really going to be some kind of new innovative play for a CDMO.

Contract Pharma: So, you don’t think this is potentially the start of VCs with a number of development candidates looking to open their own CDMOs to advance these targets more quickly.?

Shapiro: We do actually see this style of approach a lot in the academic space. In the U.S., for example, there is a joint consortium of Boston schools, and there is also the New Jersey Institute of Technology both of which have their own CDMOs; the Center for Advanced Biological Innovation and Manufacturing and BioCentriq respectively. But in the private space, I don’t see it as the trend, but rather that we will continue to see a lot of private equity interest in contract services and the advanced technology space. What it does show, is that these are not short-term problems, and there is a long-term profitable opportunity here. 

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